It’s important to understand that the primary and only real purpose for mortgage insurance is to protect your lender—not you.

As the buyer of this coverage, you’re paying the premiums so that your lender is protected. PMI is often required by lenders due to the higher level of default risk that’s associated with low down payment loans.

Private mortgage insurance and mortgage protection insurance are often confused.

Though they sound similar, they’re two totally different types of insurance products that should never be construed as substitutes for each other.

Mortgage protection insurance is essentially a life insurance policy designed to pay off your mortgage in the event of your death.

Private mortgage insurance protects your lender, allowing you to finance a home with a smaller down-payment.

Automatic Termination

Thanks to The Homeowner’s Protection Act (HPA) of 1998, borrowers have the right to request private mortgage insurance cancellation when they reach a 20 percent equity in their mortgage. What’s more, lenders are required to automatically cancel PMI coverage when a 78 percent Loan-to-Value is reached.

Some exceptions to these provisions, such as liens on property or not keeping up with payments, may require further PMI coverage.

Also, in many instances your PMI premium is often tax deductible in a similar fashion as the interest paid each year on your new mortgage is tax deductible. Please, check with a tax expert to learn your tax options.